Guy on Rocks: Investors flip the switch to risk-on, resources sees the money roll in – Stockhead

Guy on Rocks is aStockheadseries looking at the significant happenings of the resources market each week.

Former geologist and experienced stockbroker Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his hot stocks to watch.

It looks as if investors are feeling more comfortable to return to riskier stocks, particularly in the resources space.

According to Bloomberg data, miners and explorers raised nearly $2.1bn alone in May.

Weve had a general increase in sentiment with a belief in the economic recovery after the virus, so weve had a flow of funds back into the resources sector broadly and I suppose its risk-on again, Guy Le Page told Stockhead.

We continue to see some of the stocks weve mentioned like ABR (American Pacific Borates) make some very strong moves up over 70c, from the high 20s when we talked about it [in April].

Le Page said Chinas retaliatory tactics in response to Australias calls for a COVID-19 inquiry had, and would continue to have, little impact on the demand for iron ore.

Interestingly, despite the noise that China has been making about tariffs on iron ore, Australian iron ore imports are just over 63 per cent of total Chinese imports, so I think thats a game of brinkmanship that one, he said.

I think as long as Brazil, in particular Vale, is struggling with iron ore exports and that 100-million-tonne decline in shipments annualised, I think its going to be hard for China to muscle Australia to any significant level.

Another thing working in Australias favour is the fact that Brazil is still battling to get on top of the COVID-19 pandemic.

Certainly in Brazil the virus is far from under control and I think thats going to have a continued impact on global supply, Le Page said.

He expects the impact of the pandemic to flow through to copper and nickel stocks also.

Thats contributing to some fairly wild fluctuations in forecasts for in particular supply for the likes of copper and nickel, Le Page noted.

Interestingly copper has had a 14 per cent gain in imports into China year-on-year. On the other hand, nickel looks like it is in oversupply according to the consensus economics.

Based on the review of forecasts we did last week, it will be interesting to see how prices actually respond with this anticipated improvement in the economy.

Le Page ran his ruler over some nickel stocks this week, saying its not easy to find good nickel sulphide plays right now.

Aside from Rox (ASX:RXL), St George (ASX:SGQ), Poseidon (ASX:POS), Duketon (ASX:DKM), Cassini (ASX:CZI) and Mincor (ASX:MCR), theres not that many active nickel sulphide explorers, Le Page said.

One that has come onto Le Pages radar is Auroch Minerals (ASX:AOU).

The junior, which has a market cap of just $10m, is exploring for nickel 65km northwest of Kalgoorlie at the Saints project and just south of Leinster at the Leinster project.

Le Page says the Leinster region is host to some world-class deposits such as BHPs (ASX:BHP)Yakabindie nickel mine and Western Areas (ASX:WSA) Cosmos nickel operation.

Whats interesting about that is that the Norseman-Wiluna Belt has obviously got a fantastic track record, but Auroch has a resource of about 1 million tonnes at 2 per cent.So its pretty high grade. Its just over 20,000 tonnes of contained nickel, he said.

Auroch recently booked some pretty impressive intersections like 31m at 1.66 per cent nickel, and it has done further drilling and down hole electromagnetics.

Theres some pretty prospective ground along that belt and the mineralisation looks like its open along strike and down dip, Le Page says.

I think thats going to get pretty interesting. Im reasonably optimistic they are going to hit some high-grade nickel sulphide.

Another stock to watch that Le Page briefly mentioned, and plans to elaborate more on next week, is Ansila Energy (ASX:ANA).

It started off with some unconventional gas in Poland. That didnt work out, so we saw the share price retreat from almost 6c back to 0.8-0.9c. Its just poked its head up above 1.5c, Le Page explained.

Theyre putting a bid in for the Hartshead gas project in the North Sea. So that asset could have a very significant valuation of well over $50m.

That is definitely one to put on the watch list.

At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting and corporate advisory roles.

He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada and the United States.

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Guy on Rocks: Investors flip the switch to risk-on, resources sees the money roll in - Stockhead